Practical Considerations in implementing Enterprise Risk Management
Once an organization decides to go for Enterprise Risk Management, the challenge is the implementation. At the ground level there are lots of considerations in successful implementation of the same. These considerations vary with the organizations; however the following more or less remain the same: ERM Champion: First and foremost, considering the challenges an individual […]
How to create a Risk Management Plan?
Any project immaterial of the size of the same carries a lot of risks, which may be financial, non-financial, legal or physical. Having an effective risk management plan is first and foremost to the success of any project. The task is to anticipate these risks well in advance before the project takes off. A good […]
Outsourcing Risk Management Program/Outsourcing Human Capital Consulting
Managing risk efficiently and effectively can be a determining factor in the overall success of any organization. Most of the companies try to develop a risk management plan on their own and some outsource this function. Outsourcing risk management function is not a new concept and is being widely used by many organizations nowadays. However, […]
Fronting in Reinsurance
The reinsurance industry has several complicated terminologies which are routinely used. This is because there are several concepts in the reinsurance industry that are different from the general insurance industry. The concept of fronting is one such concept. Fronting can be confusing to a layperson. This is because it is a complex arrangement. However, it […]
Team Models – Different types of teams
Teams are the principal building blocks of the strategy of successful organizations. The focus of your organization may be on service, quality, cost, value, speed, efficiency, performance, or any other similar goals, but teams remain the central methodology of most organizations in the private, non-profit, as well as government sectors. The fact remains that when […]
The CAS committee on Enterprise risk management has given the following definition of the same - ‘The discipline by which any organization in any industry assesses, controls, exploits, finances and monitors risk from all the sources for the purpose of increasing organizations short-term and long-term value to its stakeholders’.
In simpler terms enterprise risk management includes all the tools and processes employed by an organization to manage and control risks and grab more opportunities in the market place. It provides a framework for better risk management.
Enterprise risk management starts with identification of events that are of relevance to the organization, the risks and opportunities. These events are evaluated on the basis of their impact and probability of occurrence and a strategy is designed to counter or meet the same; all this to add more value to stakeholders.
It is an approach where in risk is looked upon as an opportunity and at the same time is monitored such that it may not affect an organization to a large extent.
Typically the following four strategies, called as ‘risk response strategy’ are adopted by organizations while facing a risk.
Conceptual Framework: ERM in the table below has been conceptualized in two dimensions, one showing the types of risk and other the various risk management process steps.
| ERM Framework | ||||
| Process Steps | Types of Risk | |||
| Hazard | Financial | Operational | Strategic | |
| Establish Context | ||||
| Identify Risks | ||||
| Analyze/Quantify Risks | ||||
| Integrate Risks | ||||
| Assess/Prioritize Risks | ||||
| Treat Risk | ||||
| Monitor and Review | ||||
A brief explanation of the various kinds of risk is as follows:
Hazard Risk: Natural disasters, liability damages, Property damages due to fire, tornado etc, injury or illness to its employees.
Financial Risk: Risks like foreign exchange risk, commodity risk, pricing risk, asset risk, liquidity risk.
Operational Risk: labor relations, customer satisfaction, product failure etc.
Strategic Risk: Competition, fluctuation in demand and market price, regulatory and political trends, social trend, capital availability.
The other dimension of the table carries the steps of entire risk management process. The process starts from an understanding the conditions in which organization operates (Establishing context). In the next stage various threats are identified (Identifying threats) proceeded by analysis of risks.
The risks are then integrated and prioritized. In the penultimate stage strategies are designed for controlling risks (Treat Risk). Finally, the risk environment is continually monitored and the strategies are evaluated.
Organizations have various departments and functions that identify, manage and deal with different risks. These risk functions or departments vary in capability and coordinates in a unique fashion with other functions. The entire task of enterprise risk management revolves around improving or enhancing this coordination. Finally stakeholders need a cohesive picture which is provided as the output of enterprise risk management. ERM thus, enables and improvises organization’s ability to deal with risks better.
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